Question

In my opinion when the Fed buys $40 billion bonds from the private banks, which is...

In my opinion when the Fed buys $40 billion bonds from the private banks, which is a monetary policy via expansionary. The question is: pertaining to the relationship between aggregate demand, SRAS, and LRAS; WHEN WOULD THIS POLICY BE INAPPROPRIATE, AND EXPLAIN. Thanks.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The policy of monetary expansion is in appropriate in case when the economy is already expanding. this is because in such a situation there is an inflationary gap where the actual GDP is greater than the potential GDP. what the economy need at this stage is the monetary contraction that depresses the aggregate demand. Once the aggregate demand is reduced, AD will shift back and the inflationary gap will be eliminated. However if in such a situation, the central bank initiates a monetary expansion, AD will instead shift rightward and will aggravate the inflationary gap. Therefore monetary expansion is inappropriate when there is an inflationary gap.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Let’s say the Federal Reserve buys $20 Billion in bonds from private banks: *Total reserve requirement...
Let’s say the Federal Reserve buys $20 Billion in bonds from private banks: *Total reserve requirement = 0.10 x $1Trillion = $100 Billion What is the total amount (in $) of reserves that banks can lend? Using the simple deposit multiplier, how much additional money (M1) is created by this process? What will happen to the Federal Funds Rate, the prime rate, and other nominal interest rates in the economy? (Go up, down, stay the same?) Why? If the price...
Category Value Total Reserves (private banks) $100 Billion Currency (firms, households) $50 Billion Value of Euros...
Category Value Total Reserves (private banks) $100 Billion Currency (firms, households) $50 Billion Value of Euros in the U.S. (private banks, firms, households) $1 Billion Gov’t bonds (private banks, firms, households) $30 Billion Demand deposits (private banks) $1 Trillion Certificates of Deposit, CDs (private banks) $10 Billion Reserve requirement on demand deposits .10 Suppose the Fed buys $40 billion bonds from private banks. What is the total amount of reserves banks can lend and how much additional money is created...
How can banks expand the money supply when the Fed buys U.S. government bonds? As we...
How can banks expand the money supply when the Fed buys U.S. government bonds? As we did in class, use T-accounts to help explain the process and end result, using an addition of $100,000 and going through 3 rounds of activity. Explain what factors will affect that expansion and why.
The interest rate charged by the central bank when it makes loans to commercial banks is...
The interest rate charged by the central bank when it makes loans to commercial banks is called the Select one: a. reserve requirement. b. prime rate c. discount rate d. open market rate. A bank is more likely to face bank runs by depositors if it Select one: a. is solvent. b. if it thoroughly evaluate risks before lending. c. keeps more of its money it reserves. d. makes risky loans to investors. A contractionary monetary policy reduces GDP by...
1) If the stock market crashes, then aggregate demand increases, which the Fed could offset by...
1) If the stock market crashes, then aggregate demand increases, which the Fed could offset by increasing the money supply. aggregate demand increases, which the Fed could offset by decreasing the money supply. aggregate demand decreases, which the Fed could offset by increasing the money supply. aggregate demand decreases, which the Fed could offset by decreasing the money supply. 2) In order to avoid entering a recession, the government of Batavia spent $300 billion improving infrastructure around the country. Assuming...
I need to check my homework, all I dont need any explaining. Thanks 1. When the...
I need to check my homework, all I dont need any explaining. Thanks 1. When the Fed buys short-term Treasury securities, short-term interest rates: a. fall. b. rise. c. could rise or fall. d. stay the same. 2. Which is NOT a duty performed by the Federal Reserve System? a. manage the nation's payment system b. print money c. regulate the U.S. banking system d. maintain the bank account for the U.S. Treasury 3. If the Fed wants to decrease...
2. This question refers to the article: Fed raises interest rates, signals 2 more hikes in...
2. This question refers to the article: Fed raises interest rates, signals 2 more hikes in 2018 Akin Oyedele Mar. 21, 2018, 2:00 PM 16,032     The Federal Reserve announced Wednesday that it raised its benchmark interest rate by 25 basis points, to a range of 1.50% to 1.75%.     Over the next few weeks, this increase will affect credit cards, adjustable-rate mortgages, car loans, and other credit lines that don't have fixed rates.     The Fed still expects to...
Can I have your opinion on this research and possible correction? The global economy and government’s...
Can I have your opinion on this research and possible correction? The global economy and government’s ability to control its country’s currency. Definition of terms Global economy is an economic interdependence established between the most influential countries that drives the worldwide economic environment. It is also the aggregate economic output, movement and influence of all countries. (My Accounting course). Currency is the medium of exchange for goods and services. In short, its money, in the form of paper or coins,...
The crowding out effect is zero if Select one: a. the LM-curve is vertical b. the...
The crowding out effect is zero if Select one: a. the LM-curve is vertical b. the central bank conducts open market sales following fiscal expansion c. income is stimulated via a tax cut rather than an increase in government spending d. the central bank conducts open market purchases following fiscal expansion e. the LM-curve is horizontal An asset (other than money) is considered to be more liquid if Select one: a. it can be quickly and cheaply transferred into money...
Please read the article and answer these questions. Thanks. Article: TESTING THE GLOBAL CENTRAL BANK SWAP...
Please read the article and answer these questions. Thanks. Article: TESTING THE GLOBAL CENTRAL BANK SWAP NETWORK In the last few weeks, the ECB has been drawing on its liquidity swap line with the Fed, first $308 million for a week, then $658 million for a week, and last week back down to $358 million. What’s that about? It’s not such a large amount. Bank of Japan borrowed more in the past, $810 million in March and $1528 million in...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT